Financing coverage for Oregon s uninsured

1. Financing coverage for Oregon’s uninsured John McConnell, PhD Oregon Health & Science University

2. Objectives of this talk Review of health care costs Why is health care in the U.S. so expensive? Why do health care costs go up? Uncompensated care in Oregon Variations in care Chronic illness Evidence on markets The cost of covering the uninsured Review of Health Policy Commission model and estimates

3. Why is health care in the U.S. so expensive?

4. Why is health care in the U.S. so expensive? U.S. per capita spending 2.5 times greater than median Organization for Economic Cooperation and Development (OECD) country 50% higher than the second highest (Switzerland) Why so much higher than other countries?

5. “It’s the prices, stupid.” Anderson et al, Health Affairs 2003 Expenses = Price * Quantity Utilization measures are lower Fewer physicians, nurses, and hospital beds per capita than OECD median Fewer office visits, acute care bed days, shorter inpatient bed stays than OECD median MRI/CT scans equal to OECD median Prices are higher Oregon insurance CEOs focus on “unit price increases” Payments to providers “Quality” of services Some of this is good, some of it is questionable

6. Why do health care costs go up?

7. Why do health care costs go up? Costs are high, but will get higher In the US and in the OECD The rate of cost increases is similar across countries Just hurts us more because our baseline levels are so high to begin with What drives health care costs up? Lots of little reasons One big one….

8. Technological change New procedures, drugs, equipment Many of which lead to longer, healthier lives All of which increase total health care costs Example: 1956: heart disease = death 2006: heart disease + $40,000 = life Spending related to new technology (procedures/drugs/devices) accounts for 50% to 75% of increases in spending

10. Uncompensated care and cost shifting in Oregon

11. Uncompensated care in hospitals in Oregon

12. Uncompensated care in Oregon(preliminary estimates) 2004 hospital uncompensated care: $299M Total uncompensated care for 2004 estimated to be $425M What is the burden on those with commercial insurance? Approximately 6% - 9% of 2004 Oregon family premium of $9,906

13. Health reform & the cost-shift Cost shifting not a viable long-term strategy An “inefficient” hidden tax Implicit agreement to support catastrophic care over preventive care Adds to the increasing cost of commercial premiums and erosion of employer-sponsored health insurance The magnitude of uncompensated care in Oregon is large Substantial savings for employers/employees from policies that cover the uninsured But need to consider polices to insure savings actually get to employers/employees

14. Variations in care

15. Variations The Wennberg variations Pick your procedure (Back surgery, MRIs, CABG, Vioxx) and your region (states, counties with states) E.g., Medicare's costs per enrollee by region varied from $4,500 to nearly $12,000 in 2003 Better outcomes not associated with higher spending Estimates of 20% - 30% of spending could be eliminated Big savings – how to capture it? More rigorous use of evidence-based medicine Investment in Information Technology Better coordination of care

16. Chronic Ilnesses

17. Spending on chronic disease 5% of the population accounts for 56% of health care expenditures Fastest area of health care cost growth Bodenheimer: “Can we decrease costs for our sickest patients by 50%?” Large theoretical savings from disease management/EMR/HIT “Care Management Plus” model at OHSU – nurse-based care management + IT for patients with multiple chronic illnesses

18. Markets and competition

19. A lot of interest in what markets and competition can do for health care This is a natural response Markets are the “American way” Concern about moral hazard Consumers aren’t consumers More shopping would lead to better utilization and/or lower prices Focus on consumer-driven health plans (CDHP), high deductibles, health savings accounts (HSAs)

20. Markets – supply side and demand side Supply side Focus on the provider/health plan Ex ante price setting Demand side Focus on the patient/consumer Ex post price setting

21. Supply side – the evidence Focus on provider Real (inflation-adjusted) health care spending was flat for much of the 1990s Complaints from providers & patients But no observed quality/outcome problems How did managed care do it? Most savings came from rate reductions & provider discounts Not from gatekeeping, better utilization review or other ways of managing care Were there “process improvements” from providers? Some – but a lot of focus on achieving counterbalancing market power Some lessons from prepaid group model Freedom from FFS & chances to innovate (group visits) Some evidence of process improvements, costs savings Barney: If discounts and rate reductions had been continued, as a pattern of market behavior, would the constraint on reenue growth translate to providers looking for process improvements to reduce cost structures?My thought – providers really organized their market power and patients wanted more choice. If PGP model adopted, Some studies indicate that costs about 25% lower than PGPs than in other types of plans. Barney: If discounts and rate reductions had been continued, as a pattern of market behavior, would the constraint on reenue growth translate to providers looking for process improvements to reduce cost structures?

22. Demand side – the evidence Yes, in fact, moral hazard exists BUT – savings smaller than you would think Co-payments/deductibles have the biggest impact on access, not on price Whether or not you go Not how much you pay once you are there. Estimated savings if everyone moved into Health Savings Account: Range of 2.5%-7.5% One-time only savings – does not do much for the technology problem Evidence on HSA take-up Co-payments for poor/Medicaid populations? I think we have a turning point this week and you probably saw the "Wall Street Journal" article "Health Savings Plans Start to Falter," Vanessa Fuhrmans's article which is an excellent article. This is just sending shockwaves through the industry. I was out in the Midwest yesterday and everybody is talking about it. All the blogs except mine are talking about, I haven't said anything yet. I think we really did hit the turning point this week in terms of how far the consumer-driven movement which is part of the buy-downs and the cost shifting can go. I think people are finally saying we're running out of gas there. I've said over the years that in the 1960s and 1970s we said we are going to control costs by moving to self-insurance, get the employer more involved. Then in the 1980s we said let's put the provider at risk and let's bring costs under control, and that only worked to a certain extent. Now more recently we said let's put the consumer at risk. We ran out of people to put to risk so we put the least-sophisticated of all the players in the equation at risk and we are finding out that that has limitations. I think this article is probably the shift point as people are starting to say wait a second. So I think we are kind of at the bottom of this game we've been playing. You can only shift so many costs. You can only make the deductible so high. Christine Arnold: Everything I've looked at says it's stalling out. If you look at the AHIP data, America's Health Insurance Plans, we had a million members in these HSA type products in March 2005. In January 2006 we had 3.2 million, it tripled. And here we are in January 2007 and we have 4-1/2 million, so we only gained like 25 to 30 percent. And according to our broker's survey when we asked brokers what's selling, a year ago 35 percent said they were seeing more HSAs being sold, and now 32 percent are saying. So it's kind of stalling out. We're not seeing the acceleration in this product that we have thought. Part of it is that we're still seeing deductibles rising but we're reaching the point where the percent in higher deductibles is diminishing and that's your opportunity to switch someone into that account, it didn't happen, we went to the $1,500 or the $2,000 deductible, we didn't buy the account, we're not buying the account, nobody is interested in selling you the account because the broker doesn't get much of a commission on that, so I think we've missed some of our opportunity to reduce the number of uninsured with individual and with small group and it's unfortunate but it looks to me like it's stalling. Robert Laszewski: I think from a public policy standpoint when you look at the Democratic candidates for president and you look at the Republican candidates, the Democrats are proposing plans that look a lot like the Massachusetts health plan, the Republicans are looking like their proposals are going to look a lot like health savings accounts, individual choice, a lot of things we've heard from George Bush over the last few years. Here's the thing. You've got out there two grand market experiments going on. One is the Massachusetts health plan, the other one is the health savings account phenomena, consumer-driven phenomena. You have the Democrats and the Republicans both essentially basing their platforms on those things. Over the next year we're going to continue to get more and more hard data on whether Massachusetts is working or not and how well it's working and more and more hard data on whether consumer-driven health care and health savings accounts are working or not working. We've got between 8 and 10 million people in various forms of HSAs and HRAs. That's a lot of data. We've got the Massachusetts experiment going on. So it's going to be interesting as we get toward November 2008. We're not going to be talking about the theory of health reform any longer, we're going to be talking about strategies that there is going to be a lot of feedback before us to be able to examine. Joshua Raskin: I would sort of add I'm a big believer that market shifts occur because they have to and so when you saw this rampant escalation in double-digit premium increases, everyone started searching for answers and the MMA passed the legislation to allow these HSAs and they've been funded, and then health care costs are coming down a little bit. So employer groups I think have less incentive today to make these radical changes. The cost is clearly cheaper whether it's a self-funded or full risk environment, a consumer-directed health plan is going to be a cheaper option so therefore you would expect a bigger pick-up. I think the slowdown in the HSAs or broadly defined consumer-directed health plan adoption rates is probably due to the fact that the cost increases that we're seeing in the medical trend have probably come in a little bit and then you just compound that with the confusion around the product, because ultimately they go it's too confusing, I'll never figure it out, I don't know how I'm going to find out the pricing quality. You say that, but when the HMOs started in the early 1990s everyone said gatekeeper, I don't understand what you're talking about, this will never happen. And you go back to 401(k) plans, that's crazy, people are going to have no savings when they retire, et cetera. So I'm not sure that you can't get over that information, I just think it's a factor of whether there is a necessity in the market today. Robert Laszewski: I don't think there's any confusion about consumer-driven versus nonconsumer-driven. It comes down to one real simple thing I learned a long time ago in the insurance business, price. If you give the consumer a much cheaper price for consumer driven, they're going to figure out how to buy it. The problem is we haven't given a much cheaper price. Why haven't we given them a much cheaper price? Because it doesn't warrant one, and there's the fundamental problem with consumer-driven health care. When these advocates are willing to put their money where their mouth is, we'll sell a lot of it. And it's interesting, the industry moves into the self-insured market first and says Mister self-insured employer, you need this, your costs are going to be lower. Well, if they're going to be lower, why aren't they lower on the fully insured side? That's the problem with consumer driven. It's real simple: give me a cheap price and we'll sell the heck out of it.I think we have a turning point this week and you probably saw the "Wall Street Journal" article "Health Savings Plans Start to Falter," Vanessa Fuhrmans's article which is an excellent article. This is just sending shockwaves through the industry. I was out in the Midwest yesterday and everybody is talking about it. All the blogs except mine are talking about, I haven't said anything yet. I think we really did hit the turning point this week in terms of how far the consumer-driven movement which is part of the buy-downs and the cost shifting can go. I think people are finally saying we're running out of gas there. I've said over the years that in the 1960s and 1970s we said we are going to control costs by moving to self-insurance, get the employer more involved. Then in the 1980s we said let's put the provider at risk and let's bring costs under control, and that only worked to a certain extent. Now more recently we said let's put the consumer at risk. We ran out of people to put to risk so we put the least-sophisticated of all the players in the equation at risk and we are finding out that that has limitations. I think this article is probably the shift point as people are starting to say wait a second. So I think we are kind of at the bottom of this game we've been playing. You can only shift so many costs. You can only make the deductible so high. Christine Arnold: Everything I've looked at says it's stalling out. If you look at the AHIP data, America's Health Insurance Plans, we had a million members in these HSA type products in March 2005. In January 2006 we had 3.2 million, it tripled. And here we are in January 2007 and we have 4-1/2 million, so we only gained like 25 to 30 percent. And according to our broker's survey when we asked brokers what's selling, a year ago 35 percent said they were seeing more HSAs being sold, and now 32 percent are saying. So it's kind of stalling out. We're not seeing the acceleration in this product that we have thought. Part of it is that we're still seeing deductibles rising but we're reaching the point where the percent in higher deductibles is diminishing and that's your opportunity to switch someone into that account, it didn't happen, we went to the $1,500 or the $2,000 deductible, we didn't buy the account, we're not buying the account, nobody is interested in selling you the account because the broker doesn't get much of a commission on that, so I think we've missed some of our opportunity to reduce the number of uninsured with individual and with small group and it's unfortunate but it looks to me like it's stalling. Robert Laszewski: I think from a public policy standpoint when you look at the Democratic candidates for president and you look at the Republican candidates, the Democrats are proposing plans that look a lot like the Massachusetts health plan, the Republicans are looking like their proposals are going to look a lot like health savings accounts, individual choice, a lot of things we've heard from George Bush over the last few years. Here's the thing. You've got out there two grand market experiments going on. One is the Massachusetts health plan, the other one is the health savings account phenomena, consumer-driven phenomena. You have the Democrats and the Republicans both essentially basing their platforms on those things. Over the next year we're going to continue to get more and more hard data on whether Massachusetts is working or not and how well it's working and more and more hard data on whether consumer-driven health care and health savings accounts are working or not working. We've got between 8 and 10 million people in various forms of HSAs and HRAs. That's a lot of data. We've got the Massachusetts experiment going on. So it's going to be interesting as we get toward November 2008. We're not going to be talking about the theory of health reform any longer, we're going to be talking about strategies that there is going to be a lot of feedback before us to be able to examine. Joshua Raskin: I would sort of add I'm a big believer that market shifts occur because they have to and so when you saw this rampant escalation in double-digit premium increases, everyone started searching for answers and the MMA passed the legislation to allow these HSAs and they've been funded, and then health care costs are coming down a little bit. So employer groups I think have less incentive today to make these radical changes. The cost is clearly cheaper whether it's a self-funded or full risk environment, a consumer-directed health plan is going to be a cheaper option so therefore you would expect a bigger pick-up. I think the slowdown in the HSAs or broadly defined consumer-directed health plan adoption rates is probably due to the fact that the cost increases that we're seeing in the medical trend have probably come in a little bit and then you just compound that with the confusion around the product, because ultimately they go it's too confusing, I'll never figure it out, I don't know how I'm going to find out the pricing quality. You say that, but when the HMOs started in the early 1990s everyone said gatekeeper, I don't understand what you're talking about, this will never happen. And you go back to 401(k) plans, that's crazy, people are going to have no savings when they retire, et cetera. So I'm not sure that you can't get over that information, I just think it's a factor of whether there is a necessity in the market today. Robert Laszewski: I don't think there's any confusion about consumer-driven versus nonconsumer-driven. It comes down to one real simple thing I learned a long time ago in the insurance business, price. If you give the consumer a much cheaper price for consumer driven, they're going to figure out how to buy it. The problem is we haven't given a much cheaper price. Why haven't we given them a much cheaper price? Because it doesn't warrant one, and there's the fundamental problem with consumer-driven health care. When these advocates are willing to put their money where their mouth is, we'll sell a lot of it. And it's interesting, the industry moves into the self-insured market first and says Mister self-insured employer, you need this, your costs are going to be lower. Well, if they're going to be lower, why aren't they lower on the fully insured side? That's the problem with consumer driven. It's real simple: give me a cheap price and we'll sell the heck out of it.

23. Can markets tackle long-term growth? In 2007, TramGenix releases a cure for Alzheimer’s. Cost: $20,000/year This is great! (and “cost-effective” by conventional standards) 50K Oregonians with Alzheimer’s, another 26K with related disease Implies an additional $3000 in health premiums or taxes for an Oregon family of four Best estimate: adds another 100K to 200K to uninsured through increased premiums This is bad! It is very difficult to manage a drug that costs $20,000 (or $100,000) with no substitute Is there a market solution for this problem?

24. Summarizing markets If markets have been successful at cost control, it has been primarily by extracting discounts from providers (supply side) i.e., impact on “price” not “quantity” Public programs can do this, too Evidence on savings from “consumerism” is real but so far relatively small Markets don’t have a great answer for the technology-cost relationship Markets don’t do subsidies

25. Covering the Uninsured – the Cost to Oregon

26. OHPC modeling based on 3 building blocks to expand coverage Individual health insurance requirement/mandate Extending publicly financed coverage and insurance premium subsidies to more Oregonians Health Insurance Exchange

27. Assumptions Reform occurs in 2008. 100% coverage (0% uninsurance) OHP eligible to any individual with income <200% FPL Uncompensated care is estimated to be $540 million per year in Oregon Crowd-out is estimated to be 25% No subsidies for those currently covered with ESI (“firewall”) Subsidies for commercial premiums are such that the individuals spending on premiums is capped according to the following schedule: Individual with incomes between 100% and 200% FPL have spending for premiums capped at $720 for adults and $360 for children Individual with incomes between 200% and 300% FPL have spending for premiums capped at $1,440 for adults, $720 for children Individual with incomes above 300% FPL do not have spending caps on their premium spending

28. Basic structure Model has three components Enrollment Medicare Medicaid (by PERC) Commercial (ESI/Individual) Uninsured (by FPL) Spending on health services Medicare (ok data) Medicaid by PERC (good data) Commercial (weak data) Uninsured (decent estimate based on hospital uncompensated care) Cost of coverage Medicaid Based on spending + administrative overhead + federal match Commercial Based on spending + admin. overhead + allows for savings from reduced uncompensated care

29. Outputs of interest defined as Total state spending (OHP/Medicaid plus premium subsidies) Federal match (non-Medicare spending) Employer spending Individual spending on premiums Results are annual figures (not biennium) Results are for adults & children

30. Current snapshot of the uninsured

31. The next step: implementing policy UNINSURED – assume universal coverage (i.e., no uninsured) Individuals under 100% FPL: Assume 100% moved into OHP/Medicaid Individuals at 100%-200% FPL: Assume 80% moved into Medicaid Assume 20% purchase ESI with 80% premium subsidy Individuals at 200%-300% FPL: Assume 50% purchase individual insurance with 50% premium subsidy Assume 50% purchase ESI with 50% premium subsidy Individuals at >300% FPL: Assume 34% purchase individual insurance (no subsidy). Assume 66% purchase ESI (no subsidy).

32. Integration with Employer Sponsored Insurance (ESI)[J.Gruber] Low income pool – how to treat those with ESI? Three alternatives 1) Firewall – MA approach – but 30,000 are excluded from affordable coverage 2) Premium assistance sounds attractive, since many uninsured are offered ESI – leverage employer dollars But it is actually incredibly expensive

33. Premium Assistance: Facts [J.Gruber] Fact #1: Among those who are offered ESI below 300% of poverty, vast majority take it Below 100% of poverty: of all offered, only 25% uninsured 100-200% of poverty: 13% uninsured 200-300% of poverty: 6% uninsured Implication: if you offer premium assistance to low income populations, most of those eligible already have coverage! Great for horizontal equity – not for coverage

34. Premium Assistance: Facts [J.Gruber] Fact #2: Among those offered ESI who are uninsured, price sensitivity is very low After all, these individuals were already offered a very large subsidy and declined! These are folks who don’t want insurance Fact #3: If you subsidize employee contributions for a sizeable share of employees, employers will raise those contributions!

35. Premium Assistance: Implications [J.Gruber] Simple example: 1000 persons below 300% of poverty offered insurance at $2000/year – 100 of them are uninsured Offer premium assistance of $1000/person 750 of 900 already taking ESI take assistance 25 of 100 not offered ESI take assistance Cost: $775,000 Newly covered: 25 persons Costs/Newly covered: $31,000! Not unreasonable: Gruber’s study of impact of Section 125 for Federal employees found cost per newly insured of $31,000 to $84,000

36. Alternative #3: Vouchers [J.Gruber] Allow employees to come to the pool with employer dollars In theory, same as premium assistance In practice, perhaps less expensive because employees who are covered are reticent to drop that coverage and move to the pool But still expensive per newly insured Bottom line: Hard choices on low income ESI eligible Our estimates assume a firewall

37. Individual market coverage and income

38. ESI market and income

39. When does crowd-out from ESI happen? Some happens with job turn-over But biggest threat is likely to be firms with large % of low-wage employees Approximately 150K to 200K receiving ESI from firms where the majority of employees are low wage (<$10 hr) About average for the country

40. Results

41. Outputs of interest defined as Total state spending (OHP/Medicaid plus premium subsidies) Federal match (non-Medicare spending) Employer spending Individual spending on premiums Results are annual figures (not biennium) Results are for adults & children

42. Where do the uninsured go?

44. Results: spending

45. Rationale State spending up $548 $496 from OHP/Medicaid enrollment $52M for subsidies going to previously uninsured Employer spending relatively flat Greater number of employees covered, but some savings from reduced uncompensated care Individual spending slight decline More people covered, but large number 100%-300% FPL with ESI who become eligible for new subsidies

46. Thank you… …and questions? 503.494.1989 mcconnjo@ohsu.edu